Are you 'age in bonds' or 'static allocation'?

Discuss all general (i.e. non-personal) investing questions and issues, investing news, and theory.

Is your asset allocation

Age in Bonds
51
31%
Static Allocation
63
38%
Other
50
30%
 
Total votes: 164

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bob90245
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Are you 'age in bonds' or 'static allocation'?

Post by bob90245 »

The question posed on another thread this morning is: "Do most Bogleheads follow 'age in bonds' when setting their asset allocation?" This poll seeks to find out.

Your choices:

1) Age in bonds (or similar scheme to reduce stock exposure over time)

2) Stick to same equity-fixed split (static allocation) over time

3) Other - explain in your post
mikep
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Post by mikep »

Other - age-10 in bonds. I am 30 and my wife is 25.

I use age-10 since I look at my age and not my wife's and we are young. 80/20 seems appropriate.
Phatphoeater
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Post by Phatphoeater »

other:

maximum tolerable loss x 2=equity allocation
ResNullius
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Post by ResNullius »

I'm 59 years old. Back in November 2007, we had 20% fixed asset allocation. Fortuantely, due to a new market high, I decided to increase the fixed to 30%. Then, as we all know, the bottom fell out over the next 18 months. I didn't sell on the way down. On the way back up, however, I'm slowing increasing my fixed allocation, with a goal of reaching 60% fixed. I'm at 46% fixed right now. My portfolio is still off a high six-figure amount, and I want to get that money back. I hate to sell into a loss, but I'm having to do a little selling in order to increase the fixed allocation. If I ever get back to my November 2007 net asset value, I might even move fixed up to 65%. While I can psychologically handle the risk and the loss, I well and truly hate to see my hard-earned money go down the drain at this point in our lives. I now understand the need to a higher fixed allocation, much more so than I understood things two years ago. We had enough in November 2007. We still have enough, but life would be better down the road if we had the losses back where they belong. I've been investing for growth for so long that I forgot one of the major rules. I don't plan on forgetting again.
gizzsdad
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Post by gizzsdad »

Currently 52, 77% equities. On a glide path to a projected 60/40 at age 66, although this can be adjusted based on then current market performance.
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tadamsmar
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Post by tadamsmar »

I use the life cycle plan from Random Walk Down Wall Street.

It's not exactly age in bonds, so I marked other.
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tadamsmar
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Post by tadamsmar »

Phatphoeater wrote:other:

maximum tolerable loss x 2=equity allocation
So your maximum tolerable loss (MTL) is not static?

Please explain how your MTL varies over time?

Thanks!
Dagwood
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Post by Dagwood »

Yes, we generally use the age in bonds rule, but we are a bit more aggressive, so while I am in my mid 30s, we hold about 30%, perhaps a little less than that, in bonds.
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Post by luckyjimi »

72 yrs old and about 6 months ago changed my portfolio to one fund

TARGET RETIREMENT INCOME
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Post by ddb »

ResNullius wrote:If I ever get back to my November 2007 net asset value, I might even move fixed up to 65%.
ResNullius:

This is not a criticism, but rather a comment: it appears that you are allowing your past portfolio value to determine your current allocation. Is this intentional? (i.e. does a historical value of your portfolio play a role in determining your risk tolerance today?)

- DDB
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Index Fan
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Post by Index Fan »

I've used age in bonds before as a rough guide, but have switched to a fixed AA.
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bob90245
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Re: Are you 'age in bonds' or 'static allocation'?

Post by bob90245 »

bob90245 wrote:The question posed on another thread this morning is: "Do most Bogleheads follow 'age in bonds' when setting their asset allocation?" This poll seeks to find out.

Your choices:

1) Age in bonds (or similar scheme to reduce stock exposure over time)

2) Stick to same equity-fixed split (static allocation) over time

3) Other - explain in your post
Based on the posts above, I see some are filling the "Other" category with variations of choice number 1. This surprises me.

By contrast, I would have expected people who market time to fill the "Other" category. But so far, I don't see those posts yet. And that surprises me.
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LH
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Post by LH »

I do not use age in bonds.

I am 39(40 in two weeks), have a 90/10 split currently, but I have about 8 years left to pay off my house, and my house is 25 percent of my networth.

Ignoring ones home equity in AA decisions does not make much sense to me. Home equity seems pretty bond like to me, as the more you pay it off, the more comes back to you. Some treat it as a "negative bond" in terms of the amount owed, I think I look at it reverse to other people, and consider the equity as a "bond", and I discount the amount owed, since I could sell the house, and pay off the remaining principle..... So by putting money into paying off mortgage early, I am investing in a bond like instrument. If I was 90/10 stocks/bonds and in an interest only mortgage(zero equity), versus 90/10 stocks/bonds with my current home equity=25 percent net worth...... those are just highly highly different situations to me. Just a simple age=bonds percentage does not make any sense, those two people do not have the same risk.

I have not really figured out a sliding scale rule for going more into bonds. I roughly plan to do it as I age more bonds. I plan to not buy high and sell low: ie during this drop, I will not allow myself to go hey, I need more bonds now. To me, thats what the whole boglehead idea is to avoid. I behavoirally watch myself, or try to, because the bond thing is not well specified and general in my investment plan.

Right now, if I did it by net worth, and simply added bonds+home equity=

30 percent "bonds" (home equity+bonds)
50 percent stock indexes
15 percent 529 (2020 time horizon-lies outside portfolio AA)
5 percentmiscellaneous: ( HSA, Cash, individual stocks, land )

So really, if I just look at what I own for retirement(discounting the miscellaneous)

30 / (30+50) = .375
I am 37.5 percent in bond like investments, and 62.5 percent in stocks.

Interesting. I had never really gone through and worked it out before I do not think.

So if one accepts the premise home equity stake is a bond like investment, I am basically using age in "bonds" at 39 years old.... Hmmm.
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Post by Rodc »

Static for long periods, then add more bonds and hold some more.

I think it makes as much sense as anything for someone early on to pick an asset allocation and hold it from say 25 to 45 or even 50, then start to shift to whatever makes sense at retirement.

I could see holding for three periods, 25-50, 51-70 shifting down either all at once or over time, 71 to infinity hold again.

Nothing at all wrong with age in bond though, just seems a bit of false precision to me, but no harm in it and should work fine for most people.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Post by mikep »

LH wrote:Home equity seems pretty bond like to me, as the more you pay it off, the more comes back to you. Some treat it as a "negative bond" in terms of the amount owed, I think I look at it reverse to other people, and consider the equity as a "bond", and I discount the amount owed, since I could sell the house, and pay off the remaining principle.....
Using your home equity as part of your AA is a very bad plan IMHO, very risky. Few questions for you:
Will you sell the house when you need to rebalance out of bonds?
Will you buy more bonds when your home equity goes down with the housing market?
Will you cash out refinance to buy stocks if your home equity goes up more than your rebalance band?
Will you get a reverse mortgage in retirement in order for you to draw down your "bond" allocation?

I guess I could consider the same thing with car loans and credit cards. The more you pay off the more it comes back to you.
Last edited by mikep on Mon Jun 15, 2009 11:10 am, edited 1 time in total.
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Post by Opponent Process »

on average Bogleheads are something like (age-15) in bonds, and that's about where I am.

the concept of being "fixed" is hard to swallow. maybe you think you're fixed now, but that could obviously change anytime. I have a hard time believing anyone could maintain a fixed allocation for any serious length of time (10-30 years).
30/30/20/20 | US/International/Bonds/TIPS | Average Age=37
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Post by norm »

Age 70, 70% bonds.
Rodc
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Post by Rodc »

Opponent Process wrote:on average Bogleheads are something like (age-15) in bonds, and that's about where I am.

the concept of being "fixed" is hard to swallow. maybe you think you're fixed now, but that could obviously change anytime. I have a hard time believing anyone could maintain a fixed allocation for any serious length of time (10-30 years).
I kept mine fixed from starting at age 33 for 15 years, more or less (drifted a max of +\- 10% from 80/20 stocks/bonds, wasn't doing rebalancing other than adding new money at a constant 70/30).

For a few years after than I was 70/30.

This year we finally got a decent enough emerging market and small international funds, so I split up my international and bumped up bonds by 5% figuring I had bumped up risk using emerging markets and small international (ball park I hope I kept my risk profile about where I was at 70/30)

:shrug:
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Post by PatrickS »

49 years old.
70/30 equity/fixed


I not going to budge until I reach a net worth capable of sustaining my retirement. Actually, I might increase the equity portion if things get bad enough. It's a gamble and the most likely factor to cause it's failure would be inability to continue working. That reminds me- I have term life, but no disability insurance :oops:
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Post by bob90245 »

Opponent Process wrote:the concept of being "fixed" is hard to swallow. maybe you think you're fixed now, but that could obviously change anytime. I have a hard time believing anyone could maintain a fixed allocation for any serious length of time (10-30 years).
Anyone who puts most of their retirement assets in a balanced fund like Wellesley or Wellington will be following a static allocation.

I plan on following a 50-50 static allocation throughout my lifetime. It may vary as low as 40% stocks due to a severe bear market like we recently experienced. Or I might reduce stocks if I get a huge windfall and this happy circumstance reduces my need to take equity risk. I should be so lucky! :D
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Post by Rick Ferri »

There are two or three conversations going on about this topic on the board. This is a cut and paste repeat that I wrote on other conversations:

Asset allocation is more complex than 'your age in bonds' or choosing a static allocation and holding on for years without any adjustments for where you are in life or your changing circumstances. In general, the concept that people should take less risk after they have accumulated enough for retirement is a prudent idea. But the your age in bonds reduces risk even if you have not accumulated enough for retirement or have decided to work longer.

These concepts are great for someone who has no idea where to begin. However, "your age in bonds" or selecting a long-term static allocation based solely on where you are now are for only a certain group of people who have yet to learn about tailored asset allocation strategies based on changing needs.

Astute investors take a look at where they sit each year or two and make asset allocation adjustments as needed based on their circumstances. Short-term predictions about market returns should not influence asset allocation, however past market returns have a large influence on what the correct asset allocation should be. For example, bull markets allow people more options in asset allocation decisions because they now have more money while bear markets may change assumptions about retirement dates, lifestyles and about the duration of risk in the portfolio (if you decide to work longer, you can continue to take more risk and weather out the bear market). All these factors go into making prudent asset allocation decisions.

Asset allocation is a dynamic process based on changing investor circumstance. Age is one factor, but not the end all. 'Age in bonds' and 'target date' funds do not give people the option of changing the strategy based on their circumstances because those strategies sell equity during a bull or bear market even if an investor's circumstances have changed.

Rick Ferri
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Post by chuck h »

Age 62, about 55% in bonds, half of which are in a stable value fund from my previous employer.
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Post by bmb »

I am more than age in bonds, since I can afford to be. A common investing among otherwise knowledgeable investors is taking more investment risk than you have to.
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Post by fishnskiguy »

Age 66, have been 20/80 stock/bond for eight years, no plans to change.

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tadamsmar
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Re: Are you 'age in bonds' or 'static allocation'?

Post by tadamsmar »

bob90245 wrote:
bob90245 wrote:The question posed on another thread this morning is: "Do most Bogleheads follow 'age in bonds' when setting their asset allocation?" This poll seeks to find out.

Your choices:

1) Age in bonds (or similar scheme to reduce stock exposure over time)

2) Stick to same equity-fixed split (static allocation) over time

3) Other - explain in your post
Based on the posts above, I see some are filling the "Other" category with variations of choice number 1. This surprises me.

By contrast, I would have expected people who market time to fill the "Other" category. But so far, I don't see those posts yet. And that surprises me.
Perhaps the poll should be "Do you follow an AA plan that requires an increasing bond allocation as you age?"
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Post by drjdpowell »

Personally, I don't think it is possible to meaningfully determine one's "best" stock-bond allocation to better than plus of minus 10%. As I've been investing less than 10 years, that makes the first two options identical to me.
-- James
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Post by Rodc »

Asset allocation is more complex than 'your age in bonds' or choosing a static allocation and holding on for years without any adjustments for where you are in life or your changing circumstances. In general, the concept that people should take less risk after they have accumulated enough for retirement is a prudent idea. But the your age in bonds reduces risk even if you have not accumulated enough for retirement or have decided to work longer.
Agreed.
Personally, I don't think it is possible to meaningfully determine one's "best" stock-bond allocation to better than plus of minus 10%. As I've been investing less than 10 years, that makes the first two options identical to me.
-- James
Agree with that too.
We live a world with knowledge of the future markets has less than one significant figure. And people will still and always demand answers to three significant digits.
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Post by tetractys »

I'm 53. My portfolio is a pretty high risk and generally static 75/25, with lot's of emerging markets, small, and value. I agree with Rick's theory above. I'll probably lower risk about 5 years before retirement at 70. -- Tet
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Roverdog
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Post by Roverdog »

I'm 54, about Age-5. However, my plan is to increase by bond allocation by 1% a month/1.2% a year. Eventually, it'll catch up to age. :)

I'm about 85-90% of the way to having "enough" to fund a very comfortable retirement, although if needed, I could retire now.

When I get to the 100% stage, I will consider directing all further new money to bonds. Then when the bond portion grows to the point where I could fund all of my retirement needs from there, all further deposits would be directed to stocks (for heirs and charity).

Bob
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Tall Grass
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Post by Tall Grass »

Age 63...10%/90%...stocks/bonds...from this point on, I see no need to ever change; just re-balance on occasion if need be.

I believe as well that one should not take any more risk than they need to; I can get by with a 2.5% return at this point, which shouldn't be a problem unless all hell breaks loose.
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EyeDee
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Stock-Bond Ratio

Post by EyeDee »

.
Since I Do NOT know:

- How much I am going to need in retirement
- How much I am going to use up while unemployed
- How much stocks, bonds, or cash are going to return for the next xx years
- How much I will need for emergency/large expenses (roof, cars, etc.)
- How much my health insurance premiums are going to go up
- How much LTC Insurance is going to cost
- How much LTC will cost beyond insurance
- How much taxes might change
- If I will find a job before I am too old
- etc.

I use a formula.

As I have stated before:

Mr. Bogle has presented numerous options over the years.

Recently Mr. Bogle has occasionally uses Age-10 in bonds as discussed in: http://www.bogleheads.org/forum/viewtopic.php?t=24964
--------------
Since Mr. Bogle advocates including the value of pension and Social Security benefits as part of your “bond” holdings - see Bernd’s Sun Dec 07, 2008 5:52 pm post in conversation: http://www.bogleheads.org/forum/viewtopic.php?t=28579
his use of age in bonds might be more aggressive for many people than age-15 in bonds without including pension and Social Security.
--------------
From his first book “Bogle on Mutual Funds" with a Copyright date of 1994:

On Pages 235-236, Bogle quotes Benjamin Graham's advice from "The Intelligent Investor", which recommends starting at a 50-50 stock/bond split.

On page 238, he gives a matrix that lists 80/20 for Younger, Accumulation investors and goes to 50/50 for Older, Distribution investors.

The often-quoted age in bonds is on page 239.

He discusses Tactical Asset Allocation for adjusting the targets on pages 244-252.

My favorite choice is found in Bogle's examples on pages 262-271 - it is close to the 113/114 of a study of the Diehards - http://www.diehards.org/forum/viewtopic.php?t=377

Age..........Ratio (Stocks/Bonds)
25-50........80/20
51-65........65/35
60-75........50/50
over 75.....35/65.

The 60-65 year old would be in the 65/35 if still working, in the 50/50 if not.

If you smooth this choice by adjusting the amounts yearly, this choice is close to age-15 in bonds (115-age in stocks) until stopping at 35% stocks/65% bonds.
--------------
I personally do not currently plan on adjusting the formula based upon having a job and I currently plan on switching from 1 percent a year reduction in stocks at 65 when hit 50/50 to a half a percent a year from 65 to 95 stopping at 35% stocks/65% bonds at 95 (family history indicates both of us might live past 95 and highly probable that one of us will live well past 95).

In other words, since I have no idea how much I am going to need or how much my portfolio might return (I am not sure the future will match the past), I use a formula based upon the recommendation that I felt Mr. Bogle presented the strongest in “Bogle on Mutual Funds”, although I do not include Social Security or pension benefits in my calculations as I did not realized Mr. Bogle did when I read the book.
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Post by TheEternalVortex »

I don't think age in bonds makes much sense (or any formula that changes your allocation based only on your age).

I have 75% fixed equities, although that happens to put me close to age in bonds anyway (at least for now).
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Post by Sidney »

TheEternalVortex wrote:I don't think age in bonds makes much sense (or any formula that changes your allocation based only on your age).

I have 75% fixed equities, although that happens to put me close to age in bonds anyway (at least for now).
Where do you get those fixed equities? Mine seem to go up and down a lot. :wink:
I always wanted to be a procrastinator.
Phatphoeater
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Post by Phatphoeater »

tadamsmar wrote:
Phatphoeater wrote:other:

maximum tolerable loss x 2=equity allocation
So your maximum tolerable loss (MTL) is not static?

Please explain how your MTL varies over time?

Thanks!
I mistakenly answered the poll from the perspective of "how did I determine my current AA," not "how will my AA change over time." Since I just started investing, I arrived at my planned AA by thinking about how much i could recover with 1 year's worth of planned contributions and made that my MTL. This was done with the understanding that I'm just starting out and will change my AA going forward.
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Post by renditt »

Age 37 and 33% in stocks (plus 10% REITs). The 33% really comes from stocks = 2 x maximum tolerable loss plus a fixed $ limit I don't want to exceed in stocks. Our portfolio is fairly high given our age and we have sizeable annual contributions, so my need to take risk is low.

I am still playing around with this a bit, it might well be that the 33% is a good allocation for me for the long term.
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Leif
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Post by Leif »

I selected Other. Age - 15 in bonds now. Glide slope is +2% in bonds/yr.
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Post by conundrum »

We voted static allocation.

We are currently 60% fixed income/cash (early 50's age). This is based on portfolio size, current SWR and need to take risk. We are not yet retired and continue to contribute to both taxable and tax deferred accounts. We expect to carry this allocation into retirement. We agree with Rick, however and do regularly evaluate our portfolio in regards to our circumstances and how it may impact our need to take risk.

Drum
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Post by unclemick »

16th year of retirement.

SS+pension times 25 as a faux bond. When lumped with Target Retirement 2015 - roughly 35/65 stock/bond age 65.

If things got too bubbly - in the past I always made sure the portfolio yielded 3% minimum SEC yield wise.

heh heh heh - 8)
Last edited by unclemick on Mon Jun 15, 2009 9:29 pm, edited 1 time in total.
superlight
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Post by superlight »

(OTHER) I am age in bonds in theory, with even less equities in practice, as I try to average in, build up.
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Post by englishgirl »

I'm kinda sorta static at 60:40. I intend it to be static for the next 15-20 years, and it has been static for 5 or so years. But I'll move to 50:50 about 10 years out from retirement. And then will probably go to 40:60 sometime thereafter.
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ResNullius
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Post by ResNullius »

ddb wrote:
ResNullius wrote:If I ever get back to my November 2007 net asset value, I might even move fixed up to 65%.
ResNullius:

This is not a criticism, but rather a comment: it appears that you are allowing your past portfolio value to determine your current allocation. Is this intentional? (i.e. does a historical value of your portfolio play a role in determining your risk tolerance today?)

- DDB
I guess you could say that I'm doing a little of that. I know I shouldn't, but I must admit a strong desire to get back to where I was when the bottom fell out. I hate to sell anything into a down market, but I realize that I must increase my fixed asset allocation, and that requires that I sell something on the equity side. So, I'm moving slowly to increase fixed while the market moves back up. I probably should be at my target right now, since that's where I should have been for a few years now, but I'm not. This is a roundabout way of saying that you're partly right. I've got a target, and that target is to regain lost ground, then have a much higher fixed allocation. On the other hand, I'm conscious of the need to increase my fixed allocation, and I'm doing it slowly but surely. What's a person to do, other than the best we can do. There's theory, then there's life.
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KeithV
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Post by KeithV »

Since I hit 71, I have been 70% in bonds. With Military retirement, etc., no need to take anymore risk.
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Post by Chuck T »

I am 63 and my wife is 69. We are retired. Our portfolio is 40/60. 60% in bonds. This is based on input from many including Adrian's formula

Tolerable Loss X 2 up to 50% in Stocks

We think this level will serve us well.
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Post by Triple digit golfer »

I'm 24 and am sitting at 90/10.

I really don't have a plan for changing my allocation yet. So until I come up with one, I'll just rebalance.

So my plan right now is to come up with plan in the next couple years.
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Post by joe8d »

What I did was to make sure I had,at actual retirement, enough money in Conservative Income Investments to cover at least 10-15 years of estimated expenses over what my SS/Pension provided.After over 5 years in retirement,I have not had use any of it and in fact have added to it.
Last edited by joe8d on Mon Jun 15, 2009 8:32 pm, edited 1 time in total.
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Rick Ferri
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Post by Rick Ferri »

The prudent asset allocation has much more to do with financial goal rather than age. You can be 45 years old and have 60 percent in bonds or 70 years old and 20 percent in bonds. The are both prudent allocations under the right circumstances. It has to do with where you are now and what you are trying to accomplish. Age does have something to do with that goal some of the time, but not all the time.

Every situation is different. There are no rules of thumb.

Rick Ferri
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joe8d
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To Rick

Post by joe8d »

Rick,
BTW,just got my new issue of Money and saw your ETF AA recommendations ( pg 75) in the ETF article.Great job.
All the Best, | Joe
chipper
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Post by chipper »

I use equity = (110 - age)*1.25.
heyyou
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Post by heyyou »

Age 59, retired, staying at 65:35 on the portfolio with a no-COLA pension not included in the portfolio value. With expected longevity and inflation, the value of my pension payments will shrink over time. A somewhat high equity allocation is one way to buffer those problems.

My Dad bought 4.5% bonds in the late 1960s for some of his retirement income. I've seen how income is damaged by inflation.
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Post by bobbyrx »

I am recently retired and 20%/equity- 80%/fixed but I did not choose a percentage. Rather, I calculated my required/desired annual inflation-adjusted income, adjusting for SS and taxes, that I would need for 30 years. That figure happened to equal 80% of investments. The rest is in equities for estate or extreme longevity.
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